Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-22614
Atlantic Beverage Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3761400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Dundee Road, Suite 370
Northbrook, Illinios 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 480-4000
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
As of September 30, 1996, there were outstanding 5,740,984 shares of Common
Stock, par value $.01 per share, of the Registrant.
-1-
ATLANTIC BEVERAGE COMPANY, INC.
INDEX
FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
December 31, 1995 and September 30, 1996............... 3
Consolidated Statements of Operations for the nine months
ended September 30, 1996 and 1995, three months ended
September 30, 1996 and 1995 ........................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995...................... 5
Notes to Consolidated Financial Statements
(September 30, 1995 and 1994).......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
PART II - OTHER INFORMATION
Item 1-6. ............................................. 15
SIGNATURES.................................................................. 16
INDEX TO EXHIBITS........................................................... 17
-2-
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,141,787 $ -
Accounts receivable, net 6,136,979 798,385
Inventory 3,845,080 630,968
Prepaid expenses and other 662,420 171,467
---------- ---------
Total current assets 11,786,266 1,600,820
EQUIPMENT, net 3,154,944 706,518
NONCOMPETE AGREEMENTS, net 86,000 116,000
DEFERRED TAX ASSET 365,000 365,000
GOODWILL, net 11,063,869 30,666
OTHER ASSETS, net 430,540 102,143
---------- ---------
Total Assets $26,886,619 $ 2,921,147
========== ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 2,034,230 $ 297,458
Line of credit 5,071,891 440,000
Accounts payable 5,238,175 855,846
Accrued expenses 1,006,696 42,528
Current portion of obligations under capital leases 30,342 -
Current portion of notes payable 1,761,606 788
Net current liabilities of discontinued operations 203,492 722,173
---------- ---------
Total current liabilities 15,346,432 2,358,793
NOTES PAYABLE, net of current portion 6,286,510 -
OBLIGATIONS UNDER CAPITAL LEASE, net of current portion 86,795 -
DEFERRED TAX LIABILITY 167,000 -
---------- ---------
Total Liabilities 21,886,737 2,358,793
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued - -
Common stock, $.01 par value; 30,000,000 shares authorized;
6,149,022 and 2,727,955 shares issued and outstanding
in 1996 and 1995, respectively 61,490 27,280
Series A nonvoting convertible preferred stock, $.01
par value; 1 share authorized, issued and outstanding - -
Treasury stock, at cost, 408,038 shares (427,070) (427,070)
Additional paid-in capital 8,772,702 5,041,252
Accumulated deficit (3,407,240) (4,079,108)
---------- ---------
Total Stockholders' Equity 4,999,882 562,354
---------- ---------
Total Liabilities and Stockholders' Equity $26,886,619 $ 2,921,147
========== =========
The accompanying notes are an integral part of these balance sheets.
-3-
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
NET SALES $110,929,668 $16,838,094 $39,703,366 $6,042,909
COST OF GOODS SOLD 98,805,071 12,071,752 35,218,190 4,315,512
---------- ---------- ---------- ---------
Gross profit 12,124,597 4,766,342 4,485,176 1,727,397
---------- ---------- ---------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and benefits 4,975,230 2,406,439 1,775,194 825,297
Other operating expenses 5,472,137 1,806,306 1,960,131 661,018
Depreciation and amortization 650,029 278,457 204,325 109,136
--------- --------- --------- ---------
Total selling, general and
administrative expenses 11,097,396 4,491,202 3,939,650 1,595,451
---------- --------- --------- ---------
Income from operations 1,027,201 275,140 545,526 131,946
INTEREST EXPENSE 814,255 13,688 273,769 4,864
INTEREST INCOME 18,318 11,553 4,987 2,742
OTHER INCOME 440,608 - 20,274 -
------- --------- --------- ---------
Income before income tax
provision 671,872 273,005 297,018 129,824
INCOME TAX PROVISION - - - -
------- --------- --------- ---------
Net income from continuing
operations after accretion of
certain preferred stock 671,872 273,005 297,018 129,824
------- ------- ------- -------
Loss from discontinued operations - (391,468) - (132,994)
------- ------- ------- -------
Net income (loss) $ 671,872 $ (118,463) $ 297,018 $ (3,170)
------- ------- ------- -------
INCOME (LOSS) PER COMMON SHARE
DATA:
Net income (loss) from continuing
operations $ .14 $ .11 $ .05 $ .06
======= ======== ======== ========
Loss from discontinued
operations $ - $ (.15) $ - $ (.06)
======= ======== ======== ========
Net income (loss) $ .14 $ (.05) $ .05 $ -
======= ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,948,083 2,597,618 5,969,110 2,346,117
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
-4-
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 671,872 $ 273,005
Adjustments to reconcile net income to cash flows provided
by operating activities, net of non-cash items:
Depreciation and amortization 693,788 278,457
Writeoff of deferred financing costs 16,047 -
Decrease (increase) in accounts receivable, net 261,867 (107,750)
Increase in inventory (956,967) (162,375)
(Increase) decrease in prepaid expenses and other (367,881) 95,879
(Decrease) increase in accounts payable (822,256) 477,071
Increase (decrease) in accrued expenses 385,399 74,137
------- --------
Net cash flows from-
Continuing operations (118,131) 928,424
Discontinued operations (518,681) (610,220)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (363,932) (356,629)
Cash paid for acquisition of Prefco and Carlton, net
of cash acquired (3,532,001) -
Cash paid for acquisition of Richard's (2,500,000) -
Cash paid for acquisition fees (708,704) -
Decrease in other assets 125,409 -
------- --------
Net cash flows from investing activities (6,979,228) (356,629)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of equipment notes payable - (61,278)
Cash paid for financing fees (420,343) -
Borrowings under line of credit 4,631,691 562,934
Borrowings under term loan 5,900,000 -
Repayment of capital lease obligation (33,948) -
Decrease in bank overdraft, net (1,346,927) -
Repayment of notes payable (2,755,031) -
Proceeds from private placement of common stock, net 2,782,384 -
Repurchase of common stock - (409,588)
---------- ---------
Net cash flows from financing activities 8,757,826 92,068
---------- ---------
NET INCREASE IN CASH 1,141,786 53,643
--------- ---------
CASH, beginning of period - 142,395
--------- ---------
CASH, end of period $ 1,141,786 196,038
========= =========
The accompanying notes are an integral part of these statements.
-5-
ATLANTIC BEVERAGE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements present the accounts
of Atlantic Beverage Company, Inc. (the "Company") and its wholly-owned
subsidiaries. The Company, together with its subsidiaries, is engaged in the
distribution of specialty beverages in the Baltimore and Washington, D.C.
metropolitan areas and, effective January 1, 1996, engaged in the manufacturing,
marketing and distribution of meat products in several markets including
Houston, Dallas, Austin and San Antonio (see Note 3).
The consolidated financial statements included herein for Atlantic
Beverage Company, Inc. have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In management's opinion, the interim financial data presented includes all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation. Certain information and footnote disclosures normally
included in the consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. However, the Company believes that the
disclosures are adequate to understand the information presented. The results of
operations for the three months and nine months ending September 30, 1996, are
not necessarily indicative of the operating results expected for the entire
year. It is suggested that these consolidated financial statements be read in
conjunction with the Company's December 31, 1995 consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K dated March 31, 1996.
Revenue Recognition
The Company records sales when product is delivered to the customers.
Discounts provided, principally volume, are accrued at the time of the sale.
Inventory
Inventory is stated at the lower of cost or market. It is comprised of
raw materials, finished goods and inventory supplies. Cost is determined using
the first-in, first-out method (FIFO). Inventory consisted of the following as
of:
September 30, December 31,
1996 1995
------------ ------------
Raw materials $ 187,398 $ -
Finished goods 3,454,135 630,968
Packaging supplies 203,547 -
--------- -------
Total purchase price $ 3,845,080 $ 630,968
========= =======
Equipment
Equipment consists of machinery and equipment, furniture and fixtures,
leasehold improvements and delivery vehicles and are stated at cost.
Depreciation is provided using the straight-line method over following useful
lives.
Machinery and equipment 5-10 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Vehicles 5-10 years
-6-
Other Assets
Other assets consist of costs associated with the acquisitions
described and includes distribution and license agreements and deferred
financing costs. Distribution and license agreements are being amortized over
2-3 years using the straight-line method, while the deferred financing costs are
being amortized over 5 years using the effective interest method.
Goodwill
Goodwill was recorded with the acquisitions of the Predecessor, Prefco,
Inc., Carlton Foods, Inc. and Richard's Cajun Country Food Processors (see Note
3) and is being amortized using the straight-line method over 5 to 40 years.
2. LINE OF CREDIT:
In March 1996, the Company entered into a new line of credit agreement
with a bank through March 2001. Under the terms of the agreement, the Company is
permitted to borrow up to $6,500,000, subject to advance formulas based on
accounts receivable and inventory. As of September 30, 1996, the Company had
outstanding under the the line of credit approximately $5.1 million. The line of
credit is subject to monthly payments of interest and quarterly payments of
principal with a final payment of interest and principal due March 2001. The
interest rate on the line of credit is variable.
3. ACQUISITION OF PREFCO AND RICHARD'S AND MERGER OF CARLTON FOODS:
As of January 1, 1996, a newly formed, wholly-owned subsidiary of the
Company acquired the outstanding common stock of Prefco, Inc. (Prefco). Also as
of January 1, 1996, Carlton Foods, Inc. (Carlton) was merged into another newly
formed, wholly-owned subsidiary of the Company. In addition, as of August 1,
1996, another newly formed, wholly-owned subsidiary of the Company acquired
certain of the assets of Richard's Cajun Country Food Processors (Richard's).
The acquisitions were accounted for using the purchase method of accounting,
whereby the purchase price is allocated to the assets acquired and liabilities
assumed based upon fair value. The resulting goodwill was determined as follows:
Prefco Carlton Richard's
Cash consideration provided at closing $6,000,000 $ - $2,500,000
Consideration paid through the issuance of note
to the Seller 1,400,000 - 865,454
Consideration paid through the issuance of the
Company's common stock 75,000 600,002 -
Debt assumed by the Company - 2,945,180 -
Acquisition costs 230,852 227,852 250,000
------- --------- ----------
Total purchase price $7,705,852 $3,773,034 $3,615,454
========= ========= =========
Cash $2,445,210 $ 22,959 $ -
Accounts receivable 5,037,027 464,445 98,989
Inventory 1,776,325 418,547 62,273
Prepaid expenses and other assets 152,059 1,400 14,192
Property, plant and equipment 222,450 1,301,062 1,000,000
------- --------- ---------
Total assets acquired 9,633,071 2,208,413 1,175,454
--------- --------- ---------
Bank overdrafts 2,821,156 262,543 -
Accounts payable 4,908,042 246,712 -
Accrued expenses 261,873 316,896 -
Deferred tax liability - 167,000 -
Obligations under capital lease - 151,085 -
--------- --------- ----------
Total liabilities assumed 7,991,071 1,144,236 -
--------- --------- ----------
Net assets acquired 1,642,000 1,064,177 1,175,454
--------- --------- ----------
Goodwill $6,063,852 $2,708,857 $2,440,000
========= ========= =========
-7-
In connection with the Prefco and Carlton transactions, the Company
issued approximately 650,000 shares of common stock to the former stockholders
of Prefco and Carlton and issued at a price of $1.05 per share approximately
$2.7 million shares of common stock in a private placement to a limited number
of purchasers. In connection with the private placement, the Company incurred
costs of approximately $121,000. The Company also entered into a loan agreement
with a commercial bank which provided a $4.5 million term loan and a $6.5
million revolving line of credit (see Note 2). The Company also issued a
subordinated promissory note to the former shareholders of Prefco in the amount
of $1.4 million. The note bears interest at 9% per annum and is payable in
quarterly installments of interest, with a final payment of all outstanding
interest and principal on March 15, 2001.
In connection with the Richard's transaction, the Company paid cash in
the amount of $2,500,000 and issued a subordinated promissory note to the former
shareholder in the amount of $865,454. The note bears interest at 6.35% per
annum and is payable in quarterly installments, with a final payment of all
outstanding interest and principal on July 31, 2001. In addition, the former
shareholder signed an employment agreement with the Company for three years at a
salary of $50,000 per year. If, at the end of three years, the former
shareholder is still employed by the Company and Richard's meets certain
cumulative operating income targets, the Company will deliver a pre-determined
amount of shares to the former shareholder.
4. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:
In December 1995, the Company adopted a plan to dispose of its Flying
Fruit Fantasy division. As a result, the Company recognized a one-time charge of
$2,410,200, in the fourth quarter of 1995. The net liabilities of the Flying
Fruit Fantasy division have been presented separately in the accompanying
December 31, 1995 and September 30, 1996, consolidated balance sheets. The
result of operations for the three months and nine months ended September 30,
1995, are presented separately in the statement of operations as a loss from
discontinued operations.
5. EMPLOYMENT AGREEMENT:
Effective March 15, 1996, the Company entered into a five-year
employment agreement with its new Chief Executive Officer which provides for
base compensation and an incentive bonus. In connection with the employment
agreement, the Company also issued 250,000 stock options with an exercise price
of $1.50, representing the fair market value at March 15, 1996.
6. TERMINATION SETTLEMENT:
During the first quarter of 1996, Atlantic Beverage and one of its
former suppliers agreed to terminate their distribution agreement. As part of
the settlement, the former supplier agreed to pay Atlantic Beverage $250,000 in
consideration. The consideration received is included in other income on the
consolidated statements of operations. During 1995, approximately 4% of the
total cases sold represented cases supplied by this former supplier.
7. CONTINGENCIES:
Lawsuits and claims are filed against the Company from time to time in
the ordinary course of business. These actions are in various preliminary stages
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
-8-
8. SUBSEQUENT EVENT:
On October 1, 1996, the Company acquired the outstanding common stock
of Grogan's Farm, Inc. and the assets of Grogan's Sausage, Inc. (collectively
referred to as "Grogan's"). In addition, the Company also acquired certain real
property previously held by the shareholders of Grogan's. Grogan's, based in
Arlington, Kentucky, is engaged in the manufacturing, marketing and
distribution of pork sausage products. Its products are sold under the Grogan's
brand name in a region that includes six states. The combined purchase price
for the acquisition was approximately $3.8 million, including real estate. The
Company issued 573,810 shares of its common stock to the former shareholders,
paid approximately $1.9 million in cash and issued a subordinated promissory
note to the former shareholders in the amount of $200,000. The note is
effective October 1, 1998, bears interest at 8% per annum and is payable in
quarterly installments, with a final payment of all outstanding interest and
principal on September 30, 2001.
-9-
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company completed its initial public offering of common stock (the
"Offering") in 1993. Following the Offering, the Company repaid approximately
$4.2 million in debt and recorded a net non-cash charge of approximately $1.3
million in connection with the repayment of debt and the write- off of certain
intangible assets.
On April 27, 1994, the Company entered into and consummated an
agreement to acquire certain assets and marketing rights from Flying Fruit
Fantasy, USA, Inc. for total consideration of approximately $1.2 million. Under
the terms of this agreement, the Company obtained worldwide marketing and
distribution rights to a frozen beverage served through automated dispensing
machines. In December 1995, the Company adopted a plan to discontinue this
division. As a result, in the fourth quarter of 1995, the Company recognized a
one-time charge of approximately $2.4 million which reflected the write-off of
$1.1 million in equipment and $0.9 million in intangible assets, and costs of
approximately $0.4 million associated with discontinuing the operation.
In the first quarter of 1996, a newly formed, wholly-owned subsidiary
of the Company acquired the outstanding common stock of Prefco, Inc. ("Prefco").
Prefco, based in Houston, Texas, markets and distributes its own branded meat
products as well as unbranded meat products to the retail grocery trade in
Texas. Also in the first quarter of 1996, Carlton Foods, Inc. ("Carlton") was
merged into another newly formed, wholly-owned subsidiary of the Company.
Carlton, based in New Braunfels, Texas, is a manufacturer of branded and private
label meat products. The combined purchase price for these entities was
approximately $11 million, which included approximately $3.0 million in Carlton
refinanced and assumed debt. In connection with these transactions and the
financing thereof, the Company incurred transaction costs of approximately $0.9
million, which were recorded as additional goodwill on the Company's balance
sheet.
In connection with such transactions, the Company (i) issued
approximately 650,000 shares of common stock to the former stockholders of
Prefco and Carlton, (ii) issued, at a price of $1.05 per share, approximately
2.7 million shares of common stock in a private placement to a limited number of
purchasers, (iii) entered into a loan agreement with LaSalle National Bank (the
"LaSalle Facility") which provided a $4.5 million term loan, which term loan is
due March 15, 2001, and a $6.5 million revolving line of credit, and (iv) issued
a subordinated promissory note to the former shareholders of Prefco in the
amount of $1.4 million (the "Prefco Note"). The Prefco Note bears interest at 9%
per annum and is payable in quarterly installments of interest only, with a
single principal payment due March 15, 2001. The Company incurred transaction
costs of approximately $0.1 million in connection with the private placement.
In August of 1996, a newly formed, wholly-owned subsidiary of the
Company acquired certain of the assets of Richard's Cajun Country Food
Processors ("Richard's"). Richard's, based in Church Point, Louisiana, is
engaged in the manufacturing, marketing and distribution of Cajun-style
processed meat and specialty food products. The consideration for these assets
was $2.5 million cash and a subordinated promissory note in the amount of $0.865
million (the "Richard's Note.) The Richard's Note is subject to quarterly
payments of interest only at the annual rate of 6.35%, with a single principal
payment due on July 31, 2001. In funding the cash portion of the Richard's
transaction, the Company used approximately $0.8 million of existing cash
balances and approximately $0.3 million of additional line of credit borrowings
under the LaSalle Facility (the line of credit portion of which was increased by
$0.5 million) and obtained additional term debt from LaSalle National Bank in
the amount of $1.4 million, which bears interest at a variable rate of LIBOR +
3% and is subject to monthly payments of interest and quarterly payments of
principal with a final payment of interest and principal due March 15, 2001. In
connection with these transactions and the financing thereof, the Company
incurred transaction costs of approximately $0.3 million, which were recorded as
additional goodwill on the Company's balance sheet.
-10-
In October of 1996, Grogan's Merger Corp. ("GMC"), a newly formed,
wholly-owned subsidiary of the Company, acquired and merged with the
distribution and manufacturing business of Grogan's Sausage, Inc. and Grogan's
Farm, Inc. respectively (collectively "Grogan's"), based in Arlington, Kentucky
for total consideration of approximately $3.8 million, consisting of $1.9
million cash, $0.2 million in a note (the "Grogan's Note") and 573,810 shares
(approximately $1.7 million) of common stock of the Company. GMC completed three
transactions: (i) GMC acquired certain assets of Grogan's Sausage, Inc. for
$509,000 cash; (ii) GMC acquired certain real estate from Mr. and Mrs. Grogan
for $1,000,000 cash; and (iii) Grogan's Farm, Inc. was merged with and into GMC
in consideration for $391,000 cash, the Grogan's Note, and 573,810 shares of
common stock of the Company. The Grogan's Note will bear no interest through
September 30, 1998, and, commencing October 1, 1998, will be subject to
quarterly payments of interest only at the annual rate of 8%, with a single
principal payment due on September 30, 2001. In funding the $1.9 million cash
portion of the Grogan's transactions, the Company used $0.35 million in
additional line of credit borrowings under the LaSalle Facility (the line of
credit portion of which was increased by $0.5 million) and obtained additional
term debt from LaSalle National Bank in the amount of $1.55 million, which bears
interest at a variable rate of LIBOR + 3% and is subject to monthly payments of
interest and quarterly payments of principal with a final payment of interest
and principal due March 15, 2001. In connection with these transactions and the
financing thereof, the Company incurred transaction costs of approximately $0.3
million, which will be reflected as additional goodwill on the Company's balance
sheet.
Results of Operations
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995
Net Sales. Net sales increased by approximately $33.7 million or 557%
from approximately $6.0 million for the quarter ended September 30, 1995 to
approximately $39.7 million for the quarter ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's.
Gross Profit. Gross profit increased by approximately $2.8 million or
160% from approximately $1.7 million for the quarter ended September 30, 1995 to
approximately $4.5 million for the quarter ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's. Gross
profit as a percentage of net sales decreased from 28.6% to 11.3% reflecting the
lower gross profit margin associated with the Company's food operations. Gross
profit from beverage sales did increase, however, from 28.6% of sales to 29.3%
of sales reflecting lower product costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.3 million or 147% from
approximately $1.6 million for the quarter ended September 30, 1995 to
approximately $3.9 million for the quarter ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's. As a
percentage of net sales, selling, general and administrative expenses decreased
from 26.4% to 9.9%. This decrease reflects the fact that expenses as a
percentage of sales are significantly lower in the Company's food operations
than in its beverage operations, in addition to the fact that the Company is
realizing economies through spreading certain administrative expenses over
several business units.
Income from Operations. Income from operations increased approximately
$0.4 million or 313% from approximately $0.1 million for the quarter ended
September 30, 1995 to approximately $0.5 million for the quarter ended September
30, 1996. This increase is attributable to income from the Company's newly
acquired food businesses as well as the improvement in gross margin in the
Company's beverage business.
Interest Expense. Interest expense increased approximately $0.3 million
from approximately $5,000 for the quarter ended September 30, 1995 to
approximately $0.3 million for the quarter ended September 30, 1996. This
increase was attributable to debt that the Company incurred in connection with
the acquisitions of Carlton, Prefco and Richard's, including bank term debt,
borrowings under the Company's line of credit, and amounts owed to former owners
of the acquired businesses.
-11-
Net Income from Continuing Operations. Net income from continuing
operations increased approximately $0.2 million or 129% from approximately $0.1
million for the quarter ended September 30, 1995 to approximately $0.3 million
for the quarter ended September 30, 1996. This increase reflects factors
discussed above in income from operations and interest expense.
Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.1 million from approximately $0.1 million for the
quarter ended September 30, 1995 to zero for the quarter ended September 30,
1996. The loss in 1995 represents the results of the Company's discontinued
frozen beverage division.
Net Income. Net income increased approximately $0.3 million from a
loss of approximately $3,000 for the quarter ended September 30, 1995 to income
of approximately $0.3 million for the quarter ended September 30, 1996.
Nine months Ended September 30, 1996 Compared to Nine months Ended September 30,
1995
Net Sales. Net sales increased by approximately $94.1 million or 559%
from approximately $16.8 million for the nine months ended September 30, 1995 to
approximately $110.9 million for the nine months ended September 30, 1996.
This increase reflects the acquisition of Carlton, Prefco and Richard's.
Gross Profit. Gross profit increased by approximately $7.3 million or
154% from approximately $4.8 million for the nine months ended September 30,
1995 to approximately $12.1 million for the nine months ended September 30,
1996. This increase reflects the acquisition of Carlton, Prefco and Richard's.
Gross profit as a percentage of net sales decreased from 28.3% to 10.9%
reflecting the lower gross profit margin associated with the Company's food
operations. Gross profit from beverage sales did increase, however, from 28.3%
of sales to 29.7% of sales reflecting lower product costs and higher selling
prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $6.6 million or 147% from
approximately $4.5 million for the nine months ended September 30, 1995 to
approximately $11.1 million for the nine months ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's. As a
percentage of net sales, selling, general and administrative expenses decreased
from 26.7% to 10.0%. This decrease reflects the fact that expenses as a
percentage of sales are significantly lower in the Company's food operations
than in its beverage operations, in addition to the fact that the Company is
realizing economies through spreading certain administrative expenses over
several business units.
Income from Operations. Income from operations increased approximately
$0.8 million or 273% from approximately $0.3 million for the nine months ended
September 30, 1995 to approximately $1.0 million for the nine months ended
September 30, 1996. This increase is attributable to income from the Company's
newly acquired food businesses as well as to the improvement in gross margin in
the Company's beverage business.
Interest Expense. Interest expense increased approximately $0.8 million
from approximately $14,000 for the nine months ended September 30, 1995 to
approximately $0.8 million for the nine months ended September 30, 1996. This
increase was attributable to debt that the Company incurred in connection with
the acquisitions of Carlton, Prefco and Richard's, including bank term debt,
borrowings under the Company's line of credit, and amounts owed to former owners
of the acquired businesses.
-12-
Other Income. Other income increased approximately $0.4 million from
zero for the nine months ended September 30, 1995 to approximately $0.4 million
for the nine months ended September 30, 1996. This increase was primarily the
result of a one-time settlement payment of $0.25 million that the Company
received from a former beverage supplier. Other amounts include approximately
$0.1 million of income generated by the Prefco subsidiary from product sold at
special events.
Net Income from Continuing Operations. Net income from continuing
operations increased approximately $0.4 million from approximately $0.3 million
for the nine months ended September 30, 1995 to approximately $0.7 million for
the nine months ended September 30, 1996. This increase reflects factors
discussed above in income from operations, interest expense, and other income.
Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.4 million from approximately $0.4 million for the
nine months ended September 30, 1995 to zero for the nine months ended September
30, 1996. The loss in 1995 represents the results of the Company's discontinued
frozen beverage division.
Net Income (Loss). Net income (loss) increased approximately $0.8
million from a loss of approximately $0.1 million for the nine months ended
September 30, 1995 to income of approximately $0.7 million for the nine months
ended September 30, 1996.
Liquidity and Capital Resources
Cash used in operating activities for the nine months ended September
30, 1996 was approximately $0.6 million. This amount was principally affected by
net income, the add-back of depreciation and amortization, reduction in net
liabilities of discontinued operations, decreases in accounts payable and
accounts receivable, and increases in inventory, prepaid expenses and accrued
expenses. Cash used in investing activities for the nine months ended September
30, 1996 was approximately $6.9 million and primarily reflected the acquisition
of Carlton, Prefco and Richard's. Cash provided by financing activities was
approximately $8.5 million and was principally affected by debt incurred and
equity raised in connection with the acquisition of Carlton, Prefco and
Richard's. Net cash increase during the period was approximately $1.1 million.
As of September 30, 1996, the Company had outstanding under the LaSalle
Facility approximately $5.1 million in line-of-credit borrowings and
approximately $5.4 million in term debt. These amounts are subject to monthly
payments of interest and quarterly payments of term debt principal with a final
payment of interest and principal due March 15, 2001. Interest rates under the
LaSalle Facility are variable, and for the most recent quarter averaged
approximately 8.8% on the line of credit and 9.3% on the term debt.
As of September 30, 1996 the Company had outstanding approximately $2.6
million of subordinated debt owed to former owners of Prefco, Carlton and
Richard's. Interest rates are fixed and range from 6.35% to 12% with an average
of approximately 8.5%. Principal of $0.3 million is due during 1997 with the
remaining approximately $2.3 million of principal due in 2001.
The Company believes that cash generated from operations and bank
borrowings will be sufficient to fund its debt service, working capital
requirements and capital expenditures as currently contemplated for the next
year. This is a forward-looking statement and is inherently uncertain. Actual
results may differ materially. The Company's ability to fund its working capital
requirements and capital expenditures will depend in large part on the Company's
compliance with covenants in the LaSalle Facility. No assurance can be given
that the Company will remain in compliance with such covenants throughout the
term of the LaSalle Facility.
The Company has recorded a tax asset of $365,000. A valuation allowance
exists as of September 30, 1996 because, based on the weight of all available
evidence, management believes it is more likely than not that the remaining
deferred tax asset will not be fully realized. To the extent that the Company
reports taxable income in future periods, or events occur which indicate that
the remaining deferred tax asset will more than likely not be realized, the
valuation allowance may be further adjusted resulting in a lower effective tax
rate in those periods.
-13-
The Company, from time to time, reviews the possible acquisition of
other products or businesses. The Company's ability to expand successfully
through acquisition depends on many factors, including the successful
identification and acquisition of products or businesses and the Company's
ability to integrate and operate the acquired products or businesses
successfully. There can be no assurance that the Company will be successful in
acquiring or integrating any such products or businesses.
Seasonality
Consumer demand for beverage products distributed by the Company tends
to be greater during warmer months. Accordingly, the Company's beverage sales
and profits are generally highest in the second and third calendar quarters.
Management believes that this effect will be mitigated by the results of its
food operations which are less dependent on seasonal factors.
-14-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following are annexed as Exhibits:
Exhibit
Number Description
10.21 Employment Agreement between the
Company and Alan Sussna
11.2 Statement Regarding Computation of
Per Share Earnings for the three
months ended September 30, 1996
11.3 Statement Regarding Computation of
Per Share Earnings for the nine
months ended September 30, 1996
27.2 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K filed November 1, 1996
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC BEVERAGE COMPANY, INC.
Date: November 14, 1996 By: /s/ John F. Izzo
------------
John F. Izzo,
Vice President-Finance
Controller and Treasurer (On
behalf of Registrant and as
Chief Accounting Officer)
-16-
INDEX TO EXHIBITS
Exhibit Number Description Page
10.21 Employment Agreement between the Company and
Alan Sussna 1
11.2 Statement Regarding Computation of Per Share
Earnings for the three months ended September
30, 1996 13
11.3 Statement Regarding Computation of Per Share
Earnings for the nine months ended September
30, 1996 14
27.2 Financial Data Schedule 15
-17-